The technicals are aggressively bullish

Thomas H. Kee Jr. is the president and CEO of
Stock Traders Daily (dotcom), where he offers strategies and newsletters to
both institutional and individual investors, and he manages money privately for
both institutional and individual investors through Equity Logic LLC. A
specialist in technical analysis, Kee is also the founder of one of the leading,
longer-term fundamental economic and stock market indicators in history, The
Investment Rate. This proprietary tool, which is available to clients, too,
predicts major economic cycles well in advance, and has been accurate since
1900. Using his broader observations of the economy to define disciplines, Kee
has been able to accurately predict market cycles in advance using his
multi-tiered technical indicators, and that combination has kept him ahead of
the curve since starting Stock Traders Daily in January 2000.

I am not interested in reacting to the headlines, but I am looking for something important. I know what the big boys want, we all know, and if they get it they are going to be much more content with buying stocks at these levels. All they want is assurance that Europe won't let the mess they are in today collapse around them. They want evidence that European leaders are actually taking the initiative, producing executable action plans, and they are tired of hearing verbal agreements. They want to see achievements, and on Monday they may have seen the first real action plan since those vacations ended.

In addition, Greece needs to be put to bed for at least a handful of months, it seems headway has been made on the restructuring deal, and that is great news. It suggests the next tranche is coming, and Greece will not begin a domino like chain reaction within the financial system. Look at how strong bank stocks were today; they loved this news, but it is not solidified yet.

In fact, all of what caused the Markets to increase on Monday was still based on the assumptions that something was going to be done; nothing actually has been done yet. Certainly, the news from Monday makes us all a little more sure that something will be done, but the big players want to see action. I wonder if action is on the immediate horizon. Monday's market move suggests maybe soon.

Regardless of what news is on the horizon, I know a few important things about the technicals that drive my hand. I also know a few things about the persons chasing headlines.

First, the technicals are bullish, and aggressively so. They were cautious last week, but as of now the technicals are extremely bullish, and they suggest the market can increase to test the midterm resistance ranges, which are the highs from the early part of last week. This, at least, is an initial target for me because, as the longer term charts did before, they still tell us to expect eventual breaks beyond these midterm resistance ranges too. The longer term charts tell us that upward sloping support lines have held, and if that continues to be true the Markets can accelerate far beyond the midterm resistance levels that are our midterm upside targets for now, but that is a longer term look, not a near term one.

I also know that persons who react to the headlines often get themselves in trouble. I know this because I let myself get into trouble by following the headlines about three weeks ago. I do not want anyone to make serious mistakes, and I received many emails this morning which, if they were being spoken, I am sure would have been accompanied with a fist-pounding confidence as they referenced the headlines that make everyone so afraid and emotional. The only truth is the Market will not be wrong, but we all will be from time to time. Even he who has been touted as one of the best managers on the street, John Paulsen, has been seriously wrong, so it can happen to all of us too. If you were one of the people pounding his fist, and telling me you were sure the market would go down, and warning me that I was on the wrong side, all I want you to do is make sure you remain proactive, and do not get stuck on the short side. This may not be the time to be on the wrong side, especially if the European woes calm.

Everyone already knows that I have been long this market for the past week, and the market fell hard, but you also know that I have been improving cost basis along the way. I have successfully improved cost basis by about 12.5% between 9.12.11 and today. That is meaningful, and that approach is what I have chosen to do as I wait for the Market to confirm what the longer term charts are telling me. If this fails, I will have a cushion, and those people who were recently pounding the table because of the headline risks will be right, but if the Market increases like the technical patterns (not the headlines) suggest it can the cost basis improvements I have made recently will add to the gains I will realize instead.

At the very least, if you are on the short side, and you believe the market has a lot more room to fall, start improving your cost basis. Reasonably, if you were short or long in recent weeks, the wide channel has provided an excellent means to improve cost basis, so I am not telling you I am right for sure, but the supporting evidence is starting to mount. For example, if there are only a few, or no earnings warnings at all this week the market is going to start to surge.

There is absolutely no value in bonds at this time; Ultra Short Treasuries
TBT, -1.39%
is probably a great buy. Treasuries are a hiding place, and if the Market shows the strength my technicals tell me it can I believe investors in bonds are going to get run over. On the other side, if the European risks are put to rest for a while, if Greece's potential meltdown is stemmed, and if earnings actually come in decently, which my observations suggest they will, the next few weeks could be followed by very aggressive buying, M&A action too, and the headlines will shift 180 degrees.

Remember, the headlines pray on investors to capture their eyeballs, they get paid when you look, and if they feel you will look faster when you are afraid, they will prey on your fear. That is exactly what the media has been doing to capture your attention recently, and they have been doing a good job of it. Many of these concerns are well found, but the market acts ahead of news. If you are waiting for the headlines to turn from all is bad to all is good before you switch your sentiment, you may end up converting at the top of the cycle. The technicals tell me we should already have converted, and we should already be bullish. Focus on a few simple names, with midterm resistance channels as the initial target. I continue to like Proshares Ultra Long Dow
DIA, -1.21%
S&P 500
SSO, -3.10%
and NASDAQ
QLD, -4.08%

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